Embrace historic wage rises through enhanced financial performance

Proactive cash flow management is key

Earlier this year, in stage 3 of the Work Value Case, the Fair Work Commission awarded historic pay rises for aged care workers.

 Direct care worker pay is set to increase by up to 13.5 per cent from 1 July 2024, depending on skill level and qualifications.

 The imminent pay rises will have a material impact on provider cash flows even though it is understood the Government is considering fully funding the wage increases.

 Employee costs represent more than 65 per cent of total expenses for residential providers and more than 45 per cent for home care providers, according to the Department of Health and Aged Care.

 Instead of approaching wage increases with trepidation, providers can reframe this as an opportunity to unlock working capital and optimise processes, engage with staff, improve employee retention and ensure the continued delivery of high-quality care to residents.

 There are several steps that providers can take to improve their cash flow ahead of these changes.
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Develop a cash flow forecast

 A detailed cash flow forecast is essential for understanding the financial implications of any pay rises on a provider’s aged care home or service.

 A robust forecast should project cash inflows and outflows over the next 12 months and should take into consideration the possibilities of both an upfront and phased implementation of wage increases.

 By forecasting cash flow, a provider can identify any potential shortfalls or surpluses early on and adjust their financial strategy as needed.

 A proactive approach arms business leaders with the information needed to anticipate challenges, make informed decisions and clearly communicate with relevant stakeholders (i.e. financial institutions).
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Manage accounts receivable

 Implement efficient accounts receivable policies, monitor payment terms and promptly follow up overdue accounts to accelerate cash collection and minimise bad debts.

 Where possible, residential aged care providers should set up direct debits for Daily Accommodation Payments and Basic Daily Care fees with residents, while home care providers should implement efficient accounts receivable policies and closely manage overdue accounts.

 It is worth noting, our home care provider clients report faster collections from care recipients using a self-managed care platform, due to the ability to easily manage and control payments within the application.

 By optimising accounts receivable processes, providers can ensure timely receipt of funds.
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Control accounts payable

 Manage accounts payable by prioritising payments based on due dates and take advantage of any early payment discounts that may be available.

 By closely monitoring accounts payable and optimising payment schedules, providers can improve cash flow and reduce the risk of late payment penalties.
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Negotiate favourable supplier terms

 Negotiate favourable payment terms with material suppliers (e.g. technology, food, consumables, repairs and maintenance suppliers) by extending payment deadlines to optimise available cash.

Larger providers can use their scale to build stronger relationships and negotiate more favourable payment terms to better manage cash flow and maintain liquidity.

 However, it is important to communicate openly with suppliers without negatively impacting relationships or taking advantage of suppliers’ cash positions.

 Where smaller providers lack scale to negotiate, contracting via an industry supplier platform such as the Aged & Community Care Providers Association (ACCPA) may provide a better price and account terms.
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Streamline processes

 Identify and eliminate inefficiencies in processes to reduce working capital cycle times and trapped cash, minimise administrative costs, and optimise cash flow.

 This may include process controls around the management and stockpiling of consumables including bulk freight options for purchases – particularly for those providers operating in remote or regional areas.

 The best ideas often come from the frontline. Residential and home care providers are encouraged to engage with their staff and create an open dialog to share ideas on how to best reduce inefficiencies.
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Utilise new technologies

 Implement accounting software and financial management tools to automate routine tasks, streamline reporting, and improve visibility through the utilisation of dashboard reporting of key working capital and cash metrics.

 Providers are encouraged to leverage technology to enhance financial transparency, streamline their operations and make data-driven decisions to optimise cash flow.

 Adapting to changing economic conditions requires agility and foresight. With careful planning and proactive cash flow management strategies, such as those outlined, providers can be confident in their ability to meet employee pay changes, without compromising on quality care.

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Article was originally published in Aged Care Today’s Winter 2024 edition, page 89.